As obesity reaches epidemic proportions, nonalcoholic fatty liver disease (NAFLD) is becoming a frequent cause of patient referral to gastroenterologists. There is a close link between dysfunctional adipose tissue in NAFLD and common conditions such as metabolic syndrome, type 2 diabetes mellitus, and cardiovascular disease. This review focuses on the pathophysiology of interactions between adipose tissue and target organs in obesity and the resulting clinical implications for the management of nonalcoholic steatohepatitis. The release of fatty acids from dysfunctional and insulin-resistant adipocytes results in lipotoxicity, caused by the accumulation of triglyceride-derived toxic metabolites in ectopic tissues (liver, muscle, pancreatic beta cells) and subsequent activation of inflammatory pathways, cellular dysfunction, and lipoapoptosis. The cross talk between dysfunctional adipocytes and the liver involves multiple cell populations, including macrophages and other immune cells, that in concert promote the development of lipotoxic liver disease, a term that more accurately describes the pathophysiology of nonalcoholic steatohepatitis. At the clinical level, adipose tissue insulin resistance contributes to type 2 diabetes mellitus and cardiovascular disease. Treatments that rescue the liver from lipotoxicity by restoring adipose tissue insulin sensitivity (eg, significant weight loss, exercise, thiazolidinediones) or preventing activation of inflammatory pathways and oxidative stress (ie, vitamin E, thiazolidinediones) hold promise in the treatment of NAFLD, although their long-term safety and efficacy remain to be established. Better understanding of pathways that link dysregulated adipose tissue, metabolic dysfunction, and liver lipotoxicity will result in improvements in the clinical management of these challenging patients.